The new pact calls for decommissioning of stockpiles of rebel arms and will create an autonomous government in Muslim areas

* New accord will create autonomous govt in Muslim areas with wide powers

* New territory will be larger, with more powers to raise taxes

* Pact calls for decommisioning of stockpiles of rebel arms

By Anuradha Raghu

KUALA LUMPUR, Jan 25 (Reuters) - The Philippine government on Saturday agreed the final chapter of peace talks with the country's largest Muslim separatist group, clearing the last hurdle to an historic pact to end four decades of conflict that has killed tens of thousands.

Representatives from the Philippine government and the 11,000-strong Moro Islamic Liberation Front (MILF) signed the final and most challenging Annex on Normalization -- the fourth part of a peace roadmap that was set out in October 2012.

The conclusion of the talks, held in the Malaysian capital Kuala Lumpur, paves the way for the signing of the Comprehensive Agreement on the Bangsamoro (CAB) that will allow the rebel group to set up an autonomous government to run parts of the poor, but resource-rich southern island of Mindanao -- in exchange for decommissioning their weapons.

"It marks the end of a process, which is the formal negotiations," said Miriam Coronel-Ferrer, the Philippine government's chief negotiator.

"It also marks the beginning of the bigger challenge ahead which is the challenge of implementation."

Two previous laws set up autonomous governments for Muslims in the south of the mainly Roman Catholic country state, but poor implementation and a lack of legitimacy meant the separatist violence continued to fester.

LARGER TERRITORY, EXPANDED POWERS

The new proposed autonomous region will replace the existing five-province Muslim autonomous region, with a larger territory, expanded jurisdiction and greater powers to generate taxes.

The Annex on Normalization was seen as particularly sensitive because it dealt with the decommissioning of the MILF's huge stockpile of weapons.

"There's a lot of sacrifices on the part of MILF," said Mohagher Iqbal, the rebels' chief peace negotiator told a news conference.

"To pay for peace, real peace, in Mindanao, we have to decommission our forces and put them behind us."

Iqbal said the exact number of combatants involved in the disarmament process has not been finalised, but will be subject to verification and validation by an independent decommissioning body.

"There will be no element of surrender. There will be no destruction of firearms -- it merely says the firearms will be put to un-use. How that is defined will depend on the body," Iqbal said.

Malaysia has hosted peace negotiations between the Philippine government and the MILF since 2001 to end a rebellion that has killed 120,000 people and displaced 2 million.

Once the pact is formally signed, legislators can begin in earnest drafting the Bangsamoro Basic Law to formally set up the new political entity.

"We already have a roadmap signed under the first annex. The main target for that roadmap is to be able to successfully complete everything by the end of this administration, which is 2016," said Coronel-Ferrer.

"Upon the signing, we cannot expect that we will have a complete change in the situation. Everything will have to go through a gradual and phase process."

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